A government contractor has paid out “substantial” compensation following the death of a young mother who took an overdose after her disability benefits were removed.

Philippa Day, 27, a single mother from Nottingham who had longstanding mental health issues, died in hospital in October 2019, two months after taking an overdose. She had endured months of stress and anxiety after a long struggle with the Department for Work and Pensions (DWP) and Capita to reinstate her benefits.

An inquest into her death identified 28 instances where “systemic errors” by both the DWP and its contractor had led to failures in the handling of Day’s claim. These failures were a “stressor” in her decision to take the overdose, the coroner ruled, although he was unable to conclude she had intended to take her own life.

In May, Day’s family issued a compensation claim for negligence to both the DWP and Capita. The latter subsequently agreed to settle out of court. The sum was not disclosed but is understood to be in line with what the family was asking for. The family said the money would be used to provide for Day’s son’s future.

Imogen Day, Philippa’s sister, said: “Our family has always maintained that my sister’s treatment by Capita, on behalf of the DWP, directly impacted her mental state and in the end is the reason for her death. Capita’s wall of bureaucracy, with no consideration for Philippa’s mental state, exacerbated her despair at her debt and poverty. She was met with cold, uncaring call operators who would not listen to her cries for help.”

She added: “This settlement will in some measure provide for Philippa’s family and a materially stable upbringing for Philippa’s son, but he has lost his mother, and there is nothing Capita can do to put right the wrong that contributed to Philippa’s death.”

It is believed to be the first time an agent of the DWP has settled a legal claim brought as a result of their errors. Capita, which administers disability benefits under contract to DWP, has also agreed to meet the family to discuss ways to improve its interactions with benefits claimants.

A Capita spokesperson said: “We are very sorry for the mistakes we made in processing Philippa’s personal independence payment (PIP) claim and the additional stress this caused her. In partnership with the DWP, we have considered and reviewed the coroner’s report and we are implementing all the recommendations that are relevant to us.

“Following this incident, we have strengthened our processes and we are working to continuously improve and deliver a professional, efficient and kind service for every PIP applicant we assess.”

The family’s lawyer, Merry Varney of solicitors Leigh Day, welcomed the settlement: “Capita has shown acceptance of their failures and a willingness to ensure their mistakes are not repeated. However, there remain too many examples of the DWP, which controls the financial circumstances of the majority of people too sick to work, acting inhumanely to those receiving benefits and a continued resistance by the DWP to transparent investigations into benefit-related deaths.”

A DWP spokesperson said in statement: “Our condolences remain with the Day family. We cannot comment on active legal proceedings.” It is not clear to which legal proceedings they refer to as Leigh Day has confirmed the Capita settlement, meaning there is no further legal action regarding the Philippa Day case.

The DWP was issued by the coroner with a prevention of future deaths notice at the inquest requiring it to set out how it would improve its services. In its formal response in April it said it recognised “the need to treat everyone with empathy and care; especially those with mental health conditions”.

It said it had introduced specialist mental health and behaviour and relationships training for all new staff handling disability benefits. It added it was “determined to learn from this deeply tragic case”.

Day was described by her family as an intelligent, beautiful and “effervescent” woman who loved her young son and had ambitions to train as a nurse. She had endured mental illness and type 1 diabetes since childhood. She had a record of self-harm and suicide attempts and had several stays in psychiatric care.

Her life became increasingly stressful and chaotic after her benefits were reduced from GBP228 a week to just GBP60 as a result of a botched benefits application. Her distressed state was captured in a recording of a phone call to a benefits official in June 2019, played at the inquest, in which she pleaded for help.

In tears, Day had told the official: “I’ve been waiting for six months now. I’m literally starving, I can’t survive for much longer.” She added: “[I’m in] GBP5,000 debt. Nothing to eat. I’ve lost all my [benefit] premiums … I cannot survive … without any money. I need something to live for.”

After her benefits were finally reinstated, Day – who was agoraphobic – became increasingly terrified and anxious as DWP officials insisted she be retested at a face-to-face meeting at a benefits assessment centre or face losing her benefits. Her sister told the inquest this was the “straw that broke the camel’s back”.